Home Out of Trust After Refinance: The Fix

TL;DR — Key Takeaways

• A home out of trust after refinance is one of the most common defects in California estate plans, and almost nobody is told it happened. The property is deeded out to the borrowers individually before closing, the loan funds, and the deed putting it back is never prepared.
• Federal law never required the property to come out. 12 U.S.C. 1701j-3(d) provides that on a loan secured by residential real property of fewer than five dwelling units, a lender “may not exercise its option pursuant to a due-on-sale clause upon … (8) a transfer into an inter vivos trust in which the borrower is and remains a beneficiary.” What that section does not do is compel a lender to write a new loan to a trustee – so the demand is underwriting practice, not a legal necessity.
• Putting it back is not a change in ownership and does not reassess. Revenue and Taxation Code section 62(d) excludes from “change in ownership” any transfer into a trust that is revocable or in which the transferor is the present beneficiary, “or any transfer by a trustee of such a trust described in either clause (1) or (2) back to the trustor.” Both directions.
• A trust document does not hold real property. A deed does. Probate Code section 15206: “A trust in relation to real property is not valid unless evidenced by” a signed written instrument. The trust naming the house in a schedule is not title.
• If it is discovered after death there is a statutory fix, and it is a court proceeding. Probate Code section 850 lets a trustee or interested person petition where “the trustee has a claim to real or personal property, title to or possession of which is held by another.”

The Direct Answer

During a refinance many lenders require title held in a revocable trust to be deeded to the borrowers individually. The loan closes, and the deed transferring the property back into the trust is frequently never recorded. Under Probate Code section 15206 the house is then outside the trust, and it will pass through probate unless corrected.

Home Out of Trust After Refinance: What Happened at Your Closing

A sequence of ordinary, individually sensible steps that nobody owns end to end.

It goes like this. You refinance. Somewhere in the loan conditions is a requirement that title be held in the names of the borrowers rather than in the trust. Escrow prepares a grant deed transferring the property from you as trustees to you as individuals. It records. The loan funds. And then the step that was supposed to follow – a second deed putting the property back into the trust – does not happen, because escrow’s job ended at funding and the lender has no interest in what happens afterwards.

Nothing in that sequence generates a warning. You still live in the house. The property tax bill looks the same. The trust document still lists the property on its schedule of assets. Your monthly statement is unchanged. The only thing that changed is the one thing that determines whether the house avoids probate.

Probate Code section 15206 is why the schedule does not save you: a trust in relation to real property “is not valid unless evidenced by” a written instrument signed by the trustee or the trustee’s authorized agent, a written instrument conveying the property signed by the settlor or the settlor’s authorized agent, or operation of law.

A trust naming the house is a statement of intention. A deed is the transfer. Section 15210 adds that a trust relating to real property “may be recorded” in the county where the property sits – permissive, not required – which is a reminder that the recorded document that matters for the house is the deed, not the trust.

So the trust funding california home owners believe is complete may have been complete for years and then quietly undone by a transaction they were happy about at the time.

Why Do Lenders Require a Home to Be Taken Out of a Trust to Refinance?

Not because the law makes them, and the answer here is worth knowing because it changes how you negotiate it.

The fear people are told about is acceleration – that a lender could call the loan because the property sits in a trust. Federal law forecloses that. 12 U.S.C. 1701j-3 is titled “Preemption of due-on-sale prohibitions,” and it defines a due-on-sale clause as a provision authorizing a lender to declare the secured sums due if the property, or an interest in it, is sold or transferred without the lender’s prior written consent.

Subsection (b) generally lets lenders enforce those clauses notwithstanding state law. Subsection (d) then carves out nine transfers, and the eighth is ours. With respect to a loan “secured by a lien on residential real property containing less than five dwelling units,” a lender may not call the loan on “a transfer into an inter vivos trust in which the borrower … remains a beneficiary,” provided the transfer does not change occupancy rights.

The other exemptions in the same list are familiar for the same reason: a subordinate lien, a transfer on the death of a joint tenant, a lease of three years or less without a purchase option, a transfer to a relative on the borrower’s death, a transfer where the borrower’s spouse or children become an owner, and a transfer under a dissolution decree.

So an existing loan cannot be accelerated because you put your home in your revocable living trust. That is settled by statute.

Here is the line the statute does not cross, and this article will not overstate it. Section 1701j-3(d) restrains a lender from exercising a due-on-sale option on an existing loan. It does not require any lender to make a new loan to a trustee, and it does not stop a lender from setting its own underwriting, title and vesting conditions for a refinance. A refinance is a new loan. So when a lender asks for title in individual names, it is imposing a condition it is free to impose – about signatures, borrower identity, title insurance and salability of the loan – rather than protecting itself against an acceleration risk that federal law has already removed.

Which means two practical things. Some lenders will not ask at all, and it is worth asking before you assume. And where a lender does ask, the right response is not to argue about the due-on-sale clause but to make the deed back part of the closing instructions in writing, before funding.

How Do I Confirm Whether My Home Is Currently Titled in My Trust?

By reading the last recorded deed, not the trust and not the tax bill.

The is my house in my trust california question has a documentary answer, and every other source of comfort is unreliable:

• The trust’s schedule of assets is not title. Section 15206 settles that.
• The property tax bill is not title. It shows the assessee, and it often continues to show a familiar name through several transfers.
• Your recollection of “we did the trust in 2009” is not title. The question is what the most recent deed says.
• Your mortgage statement is not title. The borrower and the record owner are different facts.

What to look at, in order:

1. The most recently recorded deed for the property. Its vesting language is the answer. Look for whether the grantee is a person or persons, or a person “as Trustee of the … Trust.”
2. The county recorder’s index for your parcel. California county recorders maintain grantor-grantee indexes and most provide online search; the recorder for the county where the property sits is the authority on what has been recorded.
3. Your closing package from the refinance. If a deed out of the trust was recorded, it is in there, and the absence of a matching deed back is the whole finding.
4. The preliminary title report or title policy from the refinance, which states vesting as of that date.

The check is worth running even if you never refinanced, because the same gap arises from a purchase after the trust was signed, a home equity line, a divorce transfer, or a parcel that was simply missed at funding.

This article does not set out deed forms, notarization or recording requirements. Those come from the Civil Code and the Government Code and were not read for this article, and the mechanics matter enough that the document itself should be prepared by a lawyer or a title company rather than assembled from a template.

How Do I Put the Property Back In After Closing?

With a deed from you as individuals to yourself as trustee, recorded in the county where the property sits.

That is the whole mechanism, and the how to put house back in trust california question is mostly a question of doing it rather than of complexity. What the statutes supply is the requirement and the reassurance:

• The requirement. Section 15206 wants a written instrument conveying the property, signed by the settlor or the trustee. That is the deed.
• The reassurance on tax. Section 62(d), below, means the transfer is not a change in ownership.
• The reassurance on the loan. 12 U.S.C. 1701j-3(d)(8) means the lender cannot accelerate the existing loan because you did it.

Four practical points that follow from the sections read here:

1. Match the trust’s exact name and date. The deed’s vesting should name the trustee and the trust as the trust instrument names them. Section 18100.5(b) contemplates a certification of trust confirming “[t]he manner in which title to trust assets should be taken” and “[t]he legal description of any interest in real property held in the trust,” which is precisely what a title company will ask for.
2. Do every parcel. A second property, a vacant lot or a timeshare that was funded in 2009 and refinanced separately has its own deed and its own gap.
3. Do it now rather than at the next review. The exposure is not gradual. It is binary and it lands at death.
4. Keep the recorded copy with the trust. The next transaction will ask for it, and so will a successor trustee.

One thing a deed cannot fix retroactively. If the property was out of the trust and the settlor has already died, a deed signed now by the wrong person is not a solution. That situation goes to the section below and to a court.

Does Re-Deeding Trigger a Property Tax Reassessment?

No, on the face of the statute, and the exclusion runs in both directions.

Reassessment turns on whether there has been a “change in ownership.” Revenue and Taxation Code section 60 defines it: a transfer of a present interest in real property, including its beneficial use, “the value of which is substantially equal to the value of the fee interest.”

Section 62 then lists what a change in ownership “shall not include,” and subdivision (d) covers the whole round trip: any transfer by the trustor or the trustor’s spouse or registered domestic partner into a trust while the transferor remains the present beneficiary or the trust stays revocable; any transfer by that trust’s trustee back to the trustor; and any creation or termination of a trust in which the trustor keeps the reversion and the interests of others run no more than 12 years.

So the re-deed property to trust reassessment california worry, which is the single most common reason people put this off, is answered by the statute for a revocable living trust of which the homeowner is the trustor. Neither leg is a change in ownership.

Two limits, stated because a reader arriving from a Proposition 19 article will assume otherwise. First, section 62(d) is written for a trust that is revocable, or in which the transferor is the present beneficiary. A transfer into an irrevocable trust for someone else is a different question and is not addressed here. Second, this article makes no claim about Proposition 19, parent-to-child transfers, or the base-year value transfer rules – none of those provisions was read for this article, and they are a separate analysis that a deed into your own revocable trust does not trigger.

When to Bring Counsel In

Before the next refinance closes, and immediately if a homeowner has died with the property out of the trust.

The before-closing case is cheap and decisive. The deed back can be prepared as part of the same transaction and recorded days after funding, and the cost of doing it then is a fraction of the cost of finding it later. The instruction to give escrow is specific: confirm in writing who is preparing and recording the deed transferring the property back into the trust, and when.

The after-death case is the reason this post exists, because it is where the money is. If the settlor has died and the house is titled in their individual name, the trustee cannot simply record a deed. Probate Code section 850 is the route: it allows a petition where “the decedent died in possession of, or holding title to, real or personal property, and the property or some interest therein is claimed to belong to another,” or where “the trustee has a claim to real or personal property, title to or possession of which is held by another.” Section 856 provides that where the court “is satisfied that a conveyance, transfer, or other order should be made,” it “shall make an order authorizing and directing” the conveyance to the person entitled.

That is a real remedy and it works. It is also a petition, with a filing, notice, a hearing and fees, and it can be contested by anyone who would do better if the house passed outside the trust. This article does not describe the procedure, the notice requirements or the timing, because those sections were not read for it. What it does say is that the whole proceeding exists to fix a missing deed, and that the deed would have cost a few hundred dollars.

Related reading includes how to put your house in a California trust to avoid probate, how to fund a living trust and why it is the most critical step, fixing an unfunded trust asset, section 850 petitions for recovering property for a trust, and how a living trust avoids probate.

Work with Bay Legal

Bay Legal, PC reviews California trust funding after refinances and purchases, prepares and records deeds transferring property into and out of revocable trusts, and files Probate Code section 850 petitions where a property was left out of a trust before a death. Call (650) 668-8000 in Northern California or (213) 668-8000 in Southern California, or schedule a consultation at https://baylegal.com/contact-us/.

Frequently Asked Questions

Why do lenders require a home to be taken out of a trust to refinance?

Not because they could otherwise accelerate the loan. 12 U.S.C. 1701j-3(d)(8) bars a lender from exercising a due-on-sale option on a transfer into an inter vivos trust in which the borrower is and remains a beneficiary, for a loan on residential property of fewer than five dwelling units. What that section does not do is require any lender to write a new loan to a trustee or stop it setting its own underwriting, title and vesting conditions. A refinance is a new loan, so the requirement is practice rather than legal necessity – and some lenders do not impose it.

How do I confirm whether my home is currently titled in my trust?

Read the most recently recorded deed for the property and look at its vesting language: a person, or a person as trustee of a named trust. The trust’s schedule of assets is not title, because Probate Code section 15206 requires a written instrument conveying the property. The property tax bill is not title either, and neither is a mortgage statement. The county recorder’s index for the parcel is the authority, and the refinance closing package will show whether a deed out was recorded without a matching deed back.

How do I put the property back in after closing?

With a deed from the owners individually to themselves as trustee of the trust, recorded in the county where the property sits. Match the trust’s exact name and date as the instrument states them, because that is what a title company will check. Do every parcel separately. Section 62(d) of the Revenue and Taxation Code means the transfer is not a change in ownership, and 12 U.S.C. 1701j-3(d)(8) means the existing loan cannot be accelerated because of it. Deed forms and recording mechanics are not covered here and should be handled by a lawyer or title company.

What happens at death if the home was never re-deeded?

The house is not trust property, so it does not pass under the trust. It passes under the will if there is one, or by intestate succession, and in either case it is exposed to probate – which is the cost the trust was created to avoid. There is a statutory fix: Probate Code section 850 allows a trustee or interested person to petition where the decedent died holding title to property claimed to belong to another, or where the trustee has a claim to property held by another, and section 856 directs the court to order the conveyance. It is a court proceeding, not a filing.

Does re-deeding trigger a property tax reassessment?

No, for a revocable trust of which the homeowner is the trustor. Reassessment turns on a change in ownership, defined by Revenue and Taxation Code section 60, and section 62(d) excludes both directions of this round trip: a transfer into a trust that is revocable or in which the transferor is the present beneficiary, and “any transfer by a trustee of such a trust … back to the trustor.” A transfer into an irrevocable trust for someone else is a different question, and this does not address Proposition 19 or parent-to-child transfers.